Higher Education Bond Oversight Committee Bond Program final report

Higher Education Bond Oversight Committee
Bond Program
Final Report
September 2010
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Executive Summary
Facility Adequacy/Enrollment Growth – Aging facilities, repair backlogs, and space needs pushed by
higher education enrollment growth required visionary capital solutions.
In 1999 the UNC Board of Governors approved Building for the New Millennium. The
exhaustive report documented outmoded buildings, a huge backlog of deferred maintenance, and a
looming shortage of critical science and technology facilities on the University of North Carolina
(UNC) campuses and affiliates, including UNC‐TV. The North Carolina Community College System
(NCCCS) also completed the fourth phase of its Funding Formula Study, recommending a new
capital outlay model featuring an ability‐to‐pay index for low‐wealth counties. Clearly, a number of
existing facilities were inadequate and substantial enrollment growth was anticipated. In response,
the General Assembly authorized a $3.1 billion bond referendum and with the support of the voters
in November 2000, the largest capital bond issue for higher education in U.S. history was passed.
A Planned Program – A comprehensive and funded multi‐year capital program provided for more
effective use of human and capital resources, and resulted in superior execution.
A total of 728 projects, involving new construction or renovation, were completed at
universities and affiliates associated with the UNC system and community colleges throughout the
State under the bond program. The existence of a capital program, itself, with a funding
commitment over several years provided a level of project coordination and planning unheard of in
the era of individual project requests. This cohesive program permitted more effective sequencing
of projects for the universities, including improved ability to address infrastructure needs and
swing space. While the community colleges were not fully able to take advantage of this benefit
because they did not have planning funds to position themselves prior to the bond’s passage, they
have subsequently received funding and completed master plans for each campus which will allow
them to do so in the future. The focus and leverage provided to program managers because of the
higher level oversight found in the Higher Education Bond Oversight Committee (HEBOC), provided
a level of accountability that improved performance.
Bond program projects fulfilled a broad range of needs from additional classroom spaces,
modern science facilities, student service spaces, libraries, and residence halls, to infrastructure for
electricity, heating, cooling, communications, and land acquisition. With additional funding from
State appropriations, repairs and renovations funds, county contributions, and non‐appropriated
sources such as grants, receipts, and gifts, the total amount of funding exceeded $4 billion.
Job Creation – Capital infusion during economic recession created jobs, stabilized the construction
industry, and provided permanent value‐added improvements.
With the economic recession of 2000‐2001, the bond program provided a critical funding
infusion to keep the construction industry afloat until the economy could begin to recover. Within
just the first three years of the program 33,000 jobs were generated from the University’s portion
of the bond program alone. By the end of the program, more than 118,600 jobs were created or
saved. Bond funding was expended in every county across the State. The productive output
resulting from these jobs generated permanent improvements in infrastructure and facilities for
the State.
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State Treasurer – Timely bond issuance saved interest expense while supporting project progress.
The program could not have been successful without the Treasurer’s commitment to the
timely issue of bonds to meet cash flow requirements. In both the universities and community
colleges, schedules were generated for all of the program’s projects, updated monthly, and
consolidated into cash flow projections for communication with the State Treasurer’s Office to plan
for appropriate bond sales to support the work. Bond issues were timed to allow the bond program
to proceed unconstrained by cash flow requirements and favorable market conditions resulted in
interest rates that saved the State an estimated $390.5M in interest under initial program
projections.
Program Management – Consistently monitoring and reporting key program measurements
ensured success.
One of the biggest keys to the program’s success was program management involving
ongoing schedule, cash flow, HUB participation, and scope monitoring, as well as regular, frequent
reporting on the entire program. While the Community College System performed well with
limited resources and absent a defined program at the outset, the UNC System was outstanding in
managing the program to achieve the goal of delivering the program on budget, on schedule, and
within scope. The universities used a project management software system, “Primavera,” to
provide cash projections which were tied to the schedules and so revised as schedules were
revised. The Community Colleges System Office consolidated spreadsheet updates from their local
colleges into an overall cash flow projection. These data sources were also used for monitoring
project progress, identifying and addressing issues affecting success, and reporting to the Higher
Education Bond Oversight Committee (HEBOC).
HUB Participation – A commitment to HUB strategies has provided business opportunities to the
HUB community.
Legislation, enacted during the program, changed the primary construction delivery
methods in use and enhanced opportunities for historically underutilized businesses (HUB).
Effective January 1, 2002, agencies were permitted to routinely use single‐prime bidding or
Construction Manager at Risk (CM@R) construction delivery methods, and goals and strategies
were set for improved HUB participation. The change in construction delivery methods had a
substantial impact on the program’s ability to attract sufficient construction industry participation
to build large, complex projects, preserve competition, improve the quality of construction, and
minimize claims.
The HUB strategies provided opportunities for these firms to participate in the economic
benefits of the bond program and actual HUB participation that exceeded established goals.
However, the perception exists that even higher HUB participation is achievable in the future,
particularly for African‐American firms. Increasing sensitivity to diversifying contract awards
among all minority classifications of HUB firms is critical. Because construction project awards are
made based on the lowest bid, successful HUB participation is predicated on successful bidding by
these firms. They must be positioned to compete more effectively if participation is to increase.
Larger scale firms, capable of larger, more complex work must be fostered, and improved access to
financial markets for working capital, bonding, and competitive procurement of materials and
supplies must be available.
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Lessons Learned – Experience in this program showed the critical value of planning, scheduling,
staffing, communicating, and auditing.
Throughout the bond program, each experience provided a learning lesson to inform future
project success. Having a road map for the future in the form of master plans sets the stage. A
schedule that all parties to the process monitor and measure consistently, ensures that everyone is
committed to and following the same path. Sufficient human resources including plan reviewers
and trained owners are essential ingredients. The ability for the universities to use capital funding
for staffing in support of the projects made resources available and success possible. The
community colleges were not afforded this opportunity, but allowing the Community Colleges to
use funds in this manner would greatly benefit a future bond program. In addition, there is an
ongoing need to expand the breadth of construction community involvement via HUB firms. And,
as is true of almost all endeavors, communications is a vital ingredient to success. Finally,
monitoring quality through selected audits provides a checkpoint to continue the cycle of
improvement.
Conclusion – The bond program’s projects met a vital need at a critical time. It was visionary and
well executed but significant needs still remain.
Each individual project has a story. Some are triumphs over adversity, but all have filled
important needs for the university and community college campuses on which they exist. North
Carolina has a long history of commitment to higher education and it has been well‐served by the
completion of the bond program. In the 1999 report to the Board of Governors under the
legislative “Capital Equity and Adequacy Study,” it was noted that “…there is a new round of work to
be done—to help assure the competitiveness of the people, businesses and communities of North
Carolina….” This is no less true today and, in fact, has been reinforced in the UNC Tomorrow
Commission’s final report (December 2007) which renews our State’s commitment to education,
ensuring access to higher education, and preparing its citizens for engaged, productive lives.
Overview
In the fall of 2000, citizens of every county of North Carolina, including over 70% of all
voters, approved the Higher Education Bond Program which included $2.5B for the University
System and $600M for the North Carolina Community College System. This section is intended to
provide a broad overview of both programs.
Projects
The programs were totally different in that the legislation defined 316 projects with scopes
and budgets for the university system, but only a lump sum budget amount for the community
colleges. Because the community colleges did not have planning monies available to them, they did
not have projects designed or ready to begin design at the program’s outset. As a result, their plans
changed over the life of the program. By July 2005, the community colleges’ cash flow model
identified 392 projects, 47 less than the initial list. This reduction was due primarily to increased
construction cost during the 2004‐2005 time frame, combining repair and renovation projects, or
abandoning projects altogether. By December 2009, their cash flow model identified 409 projects.
With legislative approval of changes, the university system ended the program with a net 319
projects.
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The chart below describes the nature of the program’s projects across the universities and
community colleges.
Funding
In order to meet the overall needs of the University campuses, the initial bond program plan
involved a shared funding arrangement with the bond program to provide 60% and the campuses
40% of the needs, which would have equated to an additional $1.67B. The campuses brought
additional projects such as residence halls and student services facilities, over and above the bond
program, contributing over twice their expected share for a total additional contribution of $3.6B
The campuses also brought supplemental funding of $667M directly into bond program projects, as
shown in the table below. Community college bond funds were broadly designated with
$498,702,279 for new construction and $101,297,721 for repair and renovation and most were
required to provide some matching local funds in order to receive bond funds.
Both systems supplemented bond funds with other sources including state appropriations,
repairs and renovations funding, county funds, and non‐appropriated sources such as receipts,
grants, Title III, and gifts. The university campuses’ total appropriated addition to bond projects
was $84.9M and the non‐appropriated was $581.6M, making the total funds expended $3.167B,
excluding the additional $3.6B in projects funded entirely without bond sources. The community
colleges brought an additional $327M to their program, making their total $927M.
Bond and Supplemental Funds Summary
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Economic Impact
At the outset of the bond program, moving into 2001, the state and nation were
experiencing an economic recession. As private‐sector construction work slowed, the bond
program was cranking up, providing an opportunity for the industry’s design and construction
firms to hold on until the larger economy was re‐energized. No bids opened over budget for the
first 75 university bond project bid openings. By December 31, 2003, there were 86 bond projects
under design, 154 under construction, and 41 already completed within the university system. “In
the first three years of the bond program, more than 33,000 new jobs were created throughout the
state by the construction of bond‐financed buildings in the UNC system alone. The bond
construction program under way in the UNC system is a bright light in still often dark times for the
construction industry in North Carolina,” said Steve Gennett, president and CEO of Carolinas AGC
(Associated General Contractors). “Its positive impact also is having a ripple effect across the state.”
Ultimately, over 46,700 jobs were created from University bond‐financed construction projects
alone and more than 118,600 over the life of the entire program, including bond and other funding
contributions for both the University and Community Colleges.
The program became the modern “Works Progress Administration” (WPA) program for our
times. Bond funds were expended in counties across the state and in substantial amounts in many
as illustrated below.
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Statistics
• University
􀂃􈌳 316 projects in legislation, 34 scope changes, 8 projects added, 5 projects deleted
􀂃􈌶 6M square feet added
􀂃􈍔 Total dollars paid to designers ‐ $286.3M
􀂃􈍔 Total dollars paid for construction ‐ $2.562B
􀂃􈌸 86% of design dollars and 97% of construction dollars went to firms having
permanent offices in North Carolina
􀂃􈍇 Greatest expenditure in one month ‐ $60,885,176, November 2004
􀂃􈍇 Greatest number of projects active at one time – 255, June 2004
􀂃􈍇 Greatest number of projects in design at one time – 153, November 2001
􀂃􈍇 Greatest number of projects in construction at one time – 163, June 2004
􀂃􈍇 Greatest dollar amount under contract at one time ‐ $1.244B, July 2005
􀂃􈍌 Largest single contract ‐ $88,816,259, UNC‐CH Science Phase I
• Community Colleges
􀂃􈍇 Greatest number of projects active at one time – 213, July 2005
􀂃􈌶 6.1M square feet added
􀂃􈍇 Greatest number of projects in construction at one time – 116, July 2005
􀂃􈍌 Largest project – Project Budget ‐ $27,501,108, Wake Technical Community College,
Northeast Campus Development (Building & Infrastructure)
Scheduling/Cash Flow
The bond program was the first substantial capital initiative in North Carolina that was
based on a funding stream provided through debt financing, rather than full project appropriations
in‐hand prior to beginning a project. As a result, the need to develop and maintain project
schedules and related cash flow in order to predict borrowing needs was a vital component of the
program. Both the university and community college systems used mechanisms to aid in this
process.
Within the university system, early campus project schedules were prepared manually, with
only the use of Excel spreadsheets. The first comprehensive schedules, including the April 2002
baseline, were prepared using Microsoft Project as the scheduling tool. Because of the need to
predict cash flow requirements in order to plan bond purchases, alternative planning tools were
assessed, as Microsoft Project did not easily support this activity. In early 2003, the decision was
made to use Primavera Enterprise Scheduling software, and the system was brought on line in
September 2003.
The system was established with all project schedules in a single database. This permitted
review of a single project’s details or the roll up of information for a higher level overview by
campus or of the overall program as illustrated in the screen which follows.
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Templates for different project types were established and used as the starting point for
each project’s schedule. This insured consistency for specific activities, such as design milestones,
agency plan reviews, bid dates, etc. Costs were assigned to appropriate activities, and the total of
all costs were required to sum to the total project budget. This cost loaded schedule became the
basis for cash flow forecasting. Campuses were responsible for establishing and maintaining their
own project schedules, with updates required monthly. Baselines, a snapshot of the schedule, were
created every quarter so that progress could be monitored over time. A sample schedule is shown
below.
Having a single database that permitted review of an individual schedule for any project on
any campus, the campus overall, or the entire program was a key part of managing the program and
providing oversight to the Higher Education Bond Oversight Committee (HEBOC). Comparing
progress over time, utilizing appropriate baselines, allowed General Administration to quickly
identify problems and pursue them with the respective campuses.
The Primavera software tracks each activity, its duration, the dollar values associated with
it, and a cash distribution curve, and computes the cash flow for that activity. It then sums all of the
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cash flow for each project, so that expenditures may be predicted for any given time interval over
the life of the project. This feature, rolled up to the campus level for all of their projects and then to
the program level, was used to forecast cash flow on a monthly basis. Using a standard project
management axiom that “dollars spent equals work accomplished,” the forecast cash flow was
compared against expenditures as a gauge of the accuracy of the schedules, and thus of work put in
place. As with the baseline schedules, this provided an early warning mechanism that allowed
General Administration to focus on and address project issues with the respective campuses to
maintain budget and schedule adherence.
The cash flow forecast for the program that was generated from Primavera was also used to
help the State Treasurer determine the timing and amount of bond sales. This helped control the
cost of the program by minimizing unnecessary debt service. Bond issues were timed to allow the
bond program to proceed unconstrained by cash flow requirements and favorable market
conditions resulted in interest rates that saved the State an estimated $390.5M under initial
program projections. The chart below shows the ‘just‐in‐time’ nature of bond sales to meet UNC
expenditures.
In addition, by taking advantage of the database supporting the Primavera application,
various information related to each project such as scope, budget, other fund sources and amounts,
milestone dates, etc. was stored in the database and used in reporting program progress. This
resource simplified reporting, particularly the quarterly HEBOC report, with a dramatic (96%)
reduction in production time over reports prepared in the early months of the program. The
improvement in production efficiency for this report, alone, resulted in a savings of approximately
$1.8M over the life of the program, allowing these funds to be directed at program needs rather
than reporting requirements.
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Within the community college system, early cash flow projections revealed cash shortfalls.
As a result, the colleges were called upon to reexamine their optimistic project start dates and move
them to more realistic timelines, keeping in mind the schedule of the bond sales. Many of the larger
colleges could have moved their projects forward more quickly. However, allowing them to do so
could have delayed projects at many of the smaller colleges because of limited funds availability
based on the scheduled bond sales.
The Community Colleges System Office staff populated individual models updated by the
colleges, into one spreadsheet to determine cash needs for dialog with the State Treasurer’s Office.
The requirement for county matching funds made cash flow prediction particularly challenging.
While individual projects could be identified, scoped, budgeted, and planned, the reliance on county
governments to determine if, when, and how much matching funding would be available could
change a project’s schedule and related cash flow overnight. Responsive cash flow planning under
these trying circumstances required greater project management systems and human resources
than the community college system found at its disposal during the program. On the community
college campuses, the person that managed the cash flow model, as well as overseeing construction
projects, was typically one individual, usually the Vice President for Business & Finance or
Administration. That person was responsible for the colleges’ budget, day‐to‐day operation of
cafeterias, bookstores, purchasing, security, and the maintenance of facilities. Sufficient staff was
not available on each campus to manage these facilities, construction projects, and operations. In
fact, it is rare for a community college campus to have a facilities engineer in their employ. These
staffing levels, skill sets, and competing job responsibilities made project schedule and cash flow
projections particularly challenging for the community colleges.
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Construction Delivery Methods/Construction Manager at Risk (CM@R)
Prior to the Higher Education Improvement Bond Program, multi‐prime contracting was
the standard construction delivery method in North Carolina, with single‐prime permitted under
specific bidding conditions. In multi‐prime contracting, the owner holds separate contracts with
the general, electrical, mechanical, and plumbing contractors, each of whom bids separately and
may or may not wish to work together. In single prime contracting, the owner holds a single
contract with the general, who must then be responsible for securing and coordinating trade
contractors. In both cases, construction contracts are awarded based on lowest responsible bid,
which may not necessarily result in the best overall value.
Senate Bill 914, enacted in 2001 and effective January 1, 2002, routinely allowed single
prime and Construction Manager at Risk (CM@R) construction procurement methods. The
legislation also specified a qualification‐based selection process for CM@R with fee to be negotiated
after selection. This selection process permits the owner to select a firm best suited for the specific
project. It also allows the contractor’s record of previous performance to be considered in the
selection decision. In preparation for this legislation, the University System worked with the State
Construction Office and the State Attorney General to develop a set of procedures and new CM@R
documents.
Single prime and CM@R construction delivery were necessary to execute the program, as
many of the projects were large and technically demanding, particularly at the universities. Many
competent contractors simply would choose not to work in the litigious, multi‐prime contracting
environment. Many of the larger contractors needed to execute the program would not bid on
multi‐prime projects, and some would not bid at all, but worked only under CM@R or negotiated
construction contracts. While the university system used both contracting methods, executing a
total of 35 CM@R projects, the community college system’s projects were largely single prime, with
only a single CM@R project experience. The award of a single prime contract eliminates a
significant source of conflict and minimizes the number of players involved in a project’s execution.
With the increased collaboration that results from selecting your own team under CM@R
contracting, projects become more of a partnership working toward a common goal, instead of an
antagonistic struggle.
Evidence of the success of the single prime and CM@R construction methods can be found
in the small number of claims the bond program experienced. A total of 17 projects at UNC and 3 at
the community colleges involved formal claim filings. The result, within the university system, was
a net payout of slightly less than $1.5M against more than $18M in claims by contractors and
designers and within the community college system a net payout of just over $473,000 against
$1.1M in claims. Overall, there were claims totaling $19.3M against the program’s $4.094B, or less
than one‐half of one percent of the program involved in claims.
As with any new process, there was a learning curve, both for the university campuses and
for the contractors. There were training sessions and coaching by General Administration to
minimize problems and ensure that the new procedures were understood and followed. Under
CM@R, trade subcontractors bid competitively and publicly. Teaching trade and specialty
contractors to prepare bids and bid publicly rather than simply quoting prices to a contractor was
challenging, especially in the early stages of this construction delivery method. Successful
execution of a CM@R project requires active participation from all team members involved in the
process; the CM, the owner, and the architect. In some cases, getting owners and architects to
assume their roles as team members in such a participative design process has also proven
challenging, but as this construction delivery method has matured and all players have gained
experience, these challenges have lessened.
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Some challenges remain a work in progress. Because the CM@R fee is negotiated after
selection, it is critical that agreements be clear regarding the components of the project’s cost,
whether part of the cost of the work, the general conditions, or the fee. Reaching clarity on “General
Conditions” as an element of project cost continues to be refined.
Based on a published study comparing construction delivery methods, “Selecting Project
Delivery Systems” published by The Project Delivery Institute in 1999 (the only such study the
authors have been able to identify to date), there is some minimum cost saving, but significant time
saving for CM@R compared to the traditional design‐bid‐build method. In fact, selecting the CM@R
under a qualifications‐based selection process increases the likelihood that the contractor will be
well‐suited to the project, with size, experience, and current capacity to perform well and assure
the best possible quality in the finished product.
While it may appear that there is reduced risk with a post bid GMP when all subcontractor
prices are known, there are many risks in the construction business, only one of which is financial.
It is true that the financial risk associated with subcontractors may be eased, but the CM must still
manage the project within the parameters of the negotiated general conditions and fee in order to
be financially successful. The real risk for the CM remains to perform well, including on schedule
and with the required level of quality throughout the life of the project and, remember that award
of future work will be made on a qualifications‐based selection process. Under overheated
economic conditions, such as those experienced in 2004 and 2005, shared risk under CM@R with
timely preliminary or final GMPs can insure a sufficient pool of competitive bidders and keep prices
from being inflated in order to cover excess risk associated with volatile price markets.
In the North Carolina CM at Risk process, all unused funds from the cost of the work,
general conditions, and CM contingency return to the owner, offering little incentive for the CM to
pad estimates. As a result, there has been little evidence of excessive estimates, although the 2008‐
2009 economic downturn has resulted in receipt of a number of bids below the CM’s estimate.
The CM@R construction delivery method has contributed significantly to current capital
project construction success. Having the contractor at the table during the design process to
validate cost estimates, suggest modification to design details that simplify and speed construction,
and to establish common expectations with regard to project schedule minimizes surprises during
construction and so improves project execution. Establishing a team approach to the project
planning and execution ameliorates the sometimes adversarial relationship between owner,
designer, and contractor. Finally, because CM@R permits the development of a specific plan of HUB
outreach and inclusion, coupled with subcontractor bid packages broken into sizes suitable for
smaller firms who may not otherwise be successful in competing for projects, CM@R has been
successful in achieving significantly higher minority participation over other methods of
construction project delivery; in the 20% range achieved through CM as compared to 15‐16%
achieved through other contracting methods.
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Historically Underutilized Businesses (HUB)
Session Law 2001‐496 Public Construction Law Changes (Senate Bill 914), the University
Board of Governor’s Policy of equal access for construction contracting, and the subsequent
development of a University HUB Plan, provided a basic strategy to promote equal and increased
opportunities for all segments of the design and construction community to participate in
University construction projects. The Plan identified a methodology of:
• Identification, Recruitment and Certification
• Outreach & Education
• Legislated Good Faith Efforts
• System Program Monitoring
• System Reporting
Within the university system, liaisons and/or coordinators at the institutions were
designated to implement the HUB Plan. The following charts demonstrate the system results.
Overall minority participation was 16.7%, including design and construction contracts, which
significantly exceeded the 10% goal identified in SB914. The chart below shows the breakdown of
this participation by classification, with minority classifications combined into three categories.
“Other Minorities” combines Hispanic, Native and Asian Americans, and Socially and Economically
Disadvantaged into a single category, while African American and Women‐owned businesses are
identified separately.
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HUB participation varied across UNC institutions as indicated in the chart below which
shows the percentage of design and construction contracts awarded to HUB firms out of the total
dollar amount of contracts awarded by each constituent institution and affiliate.
Within the university system, project size and construction delivery method (i.e. hard bid
vs. CM@R) played a significant role in determining the level of HUB participation, especially for
African American firms, as illustrated in the following charts. The first chart shows significantly
increased African American participation for CM@R projects and smaller contract sizes.
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Because all construction project awards are made based on the lowest bid, as a matter of
standard procedure, firms of limited scale and organizational structure, sporadic contracting
opportunities, and financial disadvantages have diminished contracting opportunity. The CM@R
process can include opportunities to reduce these barriers to success, increase outreach efforts, and
mentor aspiring firms. Informal contract processes allow for limited bonding requirements and
provide opportunities for manageable project size, relationship‐building, and repeat contracting for
firms that perform well. A targeted, creative, and committed approach is needed to foster growth
for small firms and increase their success in competitive bidding.
Projects constructed under the CM@R construction procurement method accounted for
roughly 32% of the program’s construction contract value, yet contributed 40% of the HUB
participation. CM@R projects are required to provide a pre‐defined HUB Plan, which can be fine‐tuned
to meet specific HUB participation objectives, and to prequalify subcontractors who then
compete, on a lowest bid basis, for each trade package. As noted earlier, CM@R projects have
performed above the norm for HUB participation. Reduced barrier packages targeted for HUB and
small firms create smaller, more biddable packages which address bonding and capacity
impediments. These efforts have produced results. In addition, many large CM’s have been
receptive to partnering and mentoring emerging HUB firms to prepare them to handle small CM@R
projects. This exposure is a key component of capacity building. In the future, both of these
components of CM@R are anticipated to provide the construction opportunities that some small
firms need in order to grow larger, establish a track record of good performance, and build financial
and bonding capacity.
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For the community colleges, HUB participation is as illustrated below.
The staff of the Community College System Office has communicated to the community
colleges the need for increased efforts regarding individual campus HUB participation, which
currently varies widely, as illustrated in the chart above. A committee has been established and will
work to develop detailed processes that colleges should engage in for all future construction
projects. This committee held their first meeting on Friday, March 5, 2010 to establish committee
goals.
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Overall HUB participation for the bond program, for both UNC and the Community College
System, is illustrated below.
Despite the current bond program’s successes in HUB participation, it is evident that more
can and should be done to create an environment for the successful startup, growth, and
development of small businesses and HUB firms in particular. These emerging firms need access to
capital, competitive bonding, insurance and materials procurement opportunities, and professional
training opportunities. By laying the groundwork that fosters development and strengthens
infrastructure, these firms can gain experience by competing on larger projects. Opportunities for
tutelage under larger, more experienced firms can facilitate a stronger subcontracting, general
contracting, and construction management foundation in the state. Additional efforts are needed
to engage more diverse participation across HUB categories. Above all, a continued commitment is
needed from all parties to the process to continue and expand good faith efforts.
HUB construction participation within the UNC system increased from 11.1% to 16.9%,
from the initial bond program report in 2002 to the end of the program. Early in the program,
though, it became apparent that the available pool of HUB firms consisted predominately of trade
subcontractors and general contractors at limited licensing levels. These small firms, for the most
part, had limited financial, bonding and organizational capacity, along with limited exposure to
public bidding and university/community college contracts. As evidenced by the data on contract
size shown above, the majority of successes are on small jobs which do not require bonding,
provide quick pay, do not devastate cash flow (crucial to any entity's survival) and have a targeted
effort by the owner to include these emerging businesses in bidding opportunities. Only through a
consistent and high volume of contract opportunities can these same firms begin to build a portfolio
of jobs adequate for consideration by sureties, financial institutions, and owners, in order to expand
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to projects of increasing size and develop their capacity to the next level. Of the more than 118,600
jobs generated as a result of the entire bond program, it is estimated that more than 18,500 were in
the HUB contracting community.
Without the provision of necessary financial support by capital markets, it is unrealistic to
expect any measure of “good faith” efforts, outreach, training or mentoring will generate
opportunities that promote the emergence of viable, competitive small to large HUB businesses in
the state. The challenge of growing any small business without adequate access to capital and
bonding is daunting. In addition, many firms need ongoing, readily available access to resources for
developing their organizational structures and internal infrastructures. In recent years, legislation
(S.L. 2007‐441 Small Business Contractors Act) began opening the door for financial support,
absent the necessary funding which is essential for success. In the 2010 session, legislation passed
(HB 1035, SL2010‐148) that matches the bonding requirements of smaller projects to the
previously legislated threshold for informal projects at $500,000. This, and other phased bonding
policies, can foster small business growth.
The enormous need for training to equip contractors to compete for bond projects was only
partially addressed through the HUB Academy. The Academy was developed and initially steered
by the UNC campuses and General Administration, in partnership with the Carolinas Associated
General Contractors (CAGC), the North Carolina Institute of Minority and Economic Development,
and a few large, majority‐owned construction firms. The program received support from the
General Assembly and administration of Academy funds was subsequently transferred to the
guidance of the State Construction Office. The Academy provided a basic background in
construction‐related business practices such as project management, scheduling, reading
construction blueprints, estimating, and bidding, as well as organizational structures, public
contracts, risk management, and lien and bond law. Twelve Academies were held with instructors
provided through a combination of university staff, CAGC members, and majority contractors. Class
sizes ranged from 16 to 40 business owners and staff each, and were held in several regions of the
state. As funding was exhausted, the program developed additional partnerships with supporters
such as the North Carolina Department of Transportation (NCDOT). The program is currently
suspended due to lack of funding. A revitalization of this or similar initiatives is needed to further
level the playing field, enabling HUB firms to be better equipped to take advantage of business
opportunities and improve their abilities to realistically compete.
Finally, a strengthening of legislated Good Faith Efforts (GFEs) which are intended to insure
that HUBs are provided an opportunity to successfully bid on state projects is needed. GFEs, alone,
are not sufficient, as frequently making a good faith effort simply became a replacement for meeting
participation goals. A minimal effort is required to demonstrate good faith. Contracts are awarded
based on low bid and many HUBs are disadvantaged by:
• lack of access to capital, such as lines of credit,
• lack of competitive pricing of materials and supplies comparable to larger, more
established firms, and
• a slow‐to‐develop relationship network, still in its infancy by most standards, with
larger construction firms and traditional suppliers.
Good faith efforts will not be sufficient to foster increased HUB participation, absent
progress in these other areas. It is clear that some combination of all of these measures is required
to continue to bolster success and grow HUB businesses.
HEBOC Final Report
19
Best Practices
During the life of the bond program there were many learning experiences that will
contribute to more successful future capital projects. Having a road map for the future in the form
of master plans sets the stage. A schedule that all parties involved in the process must monitor and
measure consistently, ensures that everyone is committed to and following the same path.
Sufficient human resources including plan reviewers and trained owners are essential ingredients,
as is an ongoing need to expand the breadth of construction community involvement via HUB firms.
As is true of almost all endeavors, communications is a vital ingredient to success. Finally, checking
quality through selected audits contributes to the cycle of improvement.
Planning
One of the reasons the university bond program was successful in executing projects in a
timely manner is that the projects were identified and scoped in the legislation. Some projects had
preliminary planning underway that allowed a fast start. In addition, the existence of campus
master plans at many institutions supported coordinated strategies for the placement of buildings
and infrastructure. Campuses are required to have a Master Plan that is reviewed and updated on a
5 year cycle. Master Plans are critical to facility planning, especially in terms of infrastructure,
pedestrian and vehicular circulation, and parking, which are often missed when dealing with
individual projects in isolation. The fact that the bond program facilitated a comprehensive campus
strategy rather than individual projects of uncertain timing provided a better outcome.
The community college system did not have the advantage of advance planning funds and
therefore colleges did not have any plans ready when the bond referendum passed. This is evident
upon reviewing the timing of community college expenditures which began 12‐18 months into the
bond program as a result of the necessary design time. In addition, as a result of not having
projects ready to bid on bond passage, many community college projects were bid during the
construction cost peak during 2005.
Scheduling
Formally scheduling projects and ensuring that schedules were routinely used, not just
filed, marked an important change in the way capital projects were executed. Most campuses had
no experience with Primavera and little if any experience with scheduling software of any kind, so
there was a learning curve. Perhaps the hardest concept to grasp was the relationship between
cost loading, schedule updates and cash flow. Having all schedules available at the program level
was a key element for effective program management for the universities and allowed General
Administration to easily analyze the program and focus on problems and simplified reporting. By
standardizing the schedules, and utilizing milestones for key events, workload forecasts could be
provided to state review agencies, future bid dates could be published for designers and
contractors, and overall project metrics, such as time in design, review, and construction were
examined. Measurement is essential to improvement and these metrics have been used to better
schedule future projects and heighten mutual accountability between the partners to the process;
owners, designers, state agencies, and contractors. While some campuses have embraced
scheduling as a management tool, others continue to use it primarily as a reporting mechanism to
General Administration. Work remains to be done to fully benefit from this scheduling tool at all
institutions.
Staffing
The University System was allowed to use 5% of project funds for project management,
providing temporary funding for staffing, but no provision was made for increasing resources at the
HEBOC Final Report
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community colleges as noted previously, or for the State review agencies. As a result, reviews
sometimes delayed the capital project process. The original schedule for reviews was 30 days to
review Schematic Designs (SDs), 30 days to review Design Development (DDs) documents, and 60
days for review of Construction Documents (CDs). As the queue lengthened for reviews, and
therefore their turnaround times lengthened, representatives from General Administration began
meeting regularly with representatives from the State Construction Office (SCO) and the
Department of Insurance (DOI) to try to mutually improve the process. General Administration
began providing quarterly forecasts of projected reviews as a planning tool for the review agencies.
A combination of events including staffing levels, workload, and the need for plans to be
resubmitted resulted in some projects at the height of the program experiencing six months or
more in review time alone. Legislation provided additional positions, but not in time to help the
bond projects. However, legislation has also changed the number of review agencies involved and
so provides encouraging signals for future capital project processes.
Training
Even when funding provides for additional staffing, resources may remain insufficient if
appropriate training is not provided. Staffing the university campuses to handle the project
workload proved to be challenging, even with the 5% funding availability and many of the new staff
had no experience in the State system. New staff members were provided Capital Project
Coordinators (CPC) training under the auspices of the State Construction Office and an additional
capital project orientation course by General Administration staff, focusing on the policies and
procedures unique to the university setting. Quarterly meetings were held with people from each
campus that were responsible for the bond program to discuss emerging issues, lessons learned,
problems, schedules, and generally share information. This group was known as the Bond Alliance.
The spring and fall meetings were expanded to include all project managers, and related functions
and topics such as facilities operations. Specific training courses were provided in environmental
permitting, managing construction claims, and administratively closing projects.
HUB Firm Capacity
Before additional substantial progress can be made in HUB participation, HUB firms of
significant capacity must participate in the public construction process. The vast majority of HUB
participation is currently taking place on very small, informal projects (less than $300,000),
requiring a large volume of contract awards for a significant increase in the dollar value of HUB
contracts and a commensurate increase in HUB participation percentages. Transitioning a small
firm to an emerging larger firm, capable of larger project work, requires knowledge on the firm’s
part of how to effectively grow their business; moving from doing the work to managing the work.
Owners must be stringent in reinforcing goals from the top down, awarding contracts on
achievement of the participation objectives and not just the effort. The term ‘responsive’ must be
clearly defined and used diligently when awarding projects. Equally important is the requirement
of systemic support for access to capital, buying agreements, bonding, and other resources. A more
diverse utilization of HUB firms will better serve the University’s goals of inclusiveness.
Communicating
The value of timely communication with all stakeholders in the capital project process
should not be underestimated. Many problems were avoided because of regular contact that
provided a forum for raising and resolving issues. The Bond Alliance, as noted above, met quarterly
during the program to share questions and experiences. Where one institution raised a problem, in
many cases another institution had experience that could provide a solution. Routine meetings
with the Carolinas Association of General Contractors (CAGC), the American Institute of Architects‐
North Carolina (AIA‐NC), and American Consulting Engineers Council (ACEC), provided a conduit
HEBOC Final Report
21
for issues to be raised from a service provider/contractor’s perspective. Also, meetings with review
agencies (State Construction Office, Department of Insurance) facilitated mutual rather than
adversarial problem‐solving approaches when long review times were a frustrating part of
everyday project management. Keeping communications channels open and maintaining regular
contact, not just incident‐driven dialog should be a best practice that extends far beyond the bond
program experience.
Auditing
Finally, checking the quality of work is always a good practice. A number of independent
audits were performed on selected projects within the university system, and were valuable for
identifying and addressing potential problems. Audits of CM@R projects highlighted some
misclassified expenses and release of payments that allowed these areas to be tightened following
sharing of this information across the system. Savings resulted in subsequent projects. The
community colleges performed a control audit to ensure that procedures were being uniformly
followed. A few audits, reasonably early in the program, generated benefits that would not have
been achieved had any audits been relegated to a closing activity and ensured consistency and
transparency important to the tax‐paying public.
The Lessons of Experience
Capital Program vs. Individual Projects
With the passage of the bond referendum, the university and community college systems
had, for the first time, a known stream of capital project funding over an extended period of time.
The value of this program as compared to the authorization of individual projects was of significant
benefit for the universities, who had a known list of prescribed projects and budgets. Knowing the
scope, budget, and number of projects, allowed each campus to plan the sequence of project
execution.
The most common sequence was to build new facilities, move occupants into those facilities,
and then renovate the old facilities. This provided for more efficient swing‐space opportunities, as
one of the biggest challenges in major renovations almost always involves the provisioning of
temporary quarters for building occupants during renovation. With space tight to begin with, there
are often no feasible options. Under the individual project authorization model, space was often
unable to be converted to its best and highest use for the campus because there was no opportunity
to address swing space and the related project sequencing required. The bond program supported
this need. In addition, at two institutions, NCSU and UNC‐W, swing space was constructed and
served dual purposes; first as swing space during the bond program, and now as a solution to other,
ongoing space needs for each institution. NCSU’s project provides flexible lab space which allows
for the fluid nature of research at a major research institution.
The capital program also supported planning for necessary utilities and consideration of
traffic and pedestrian flow, as well as interruptions in these areas resulting from construction.
Infrastructure projects are traditionally hard to fund since they are not glamorous opportunities for
ground‐breaking or building naming and are particularly difficult when projects are funded
individually. Where a campus has a central or regional utility plant, it is difficult to tell which
project will trigger the need for an additional boiler or chiller. If projects are funded one at a time,
each project must include sufficient funds to pay for the additional boiler or chiller, should it be the
one to trigger the need. Again, knowing the extent of the legislated program, each campus could
decide when the appropriate time was for such an addition. Most campuses replaced and/or
expanded their utility infrastructure and contributed an additional $172M to the bond program for
HEBOC Final Report
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this. At one campus, ECSU, the ability to predict utility needs with this programmatic approach
allowed them to construct a central utility plant to support more efficient, centralized heating and
cooling.
In addition, under the individual project funding model, planning, estimating, and
prioritizing for all capital project types was typically completed on a massive scale biennially, with
fine‐tuning in the intervening years and the often unfortunate outcome that no capital or only
partial capital funding was forthcoming. This funding roulette challenged all campuses to manage
projects effectively under a high degree of uncertainty. The bond program allowed staff energy to
be focused on the thoughtful execution of the projects, with the certain knowledge of available
funds.
Because the community colleges did not have the opportunity to define projects in advance,
their benefit from this aspect of the program was limited. However, they are poised to take
advantage of any future such opportunities since they have updated master plans available. To
maximize the effectiveness of these master plans, additional planning funds are needed.
While the certainty of the bond program provided benefits, it was also appropriately
flexible in permitting changes in project scope and in moving funds between projects. Each
campus, whether university or community college, is a unique and ever‐changing entity. Academic
programs grow and shrink, driven by many factors, so the facility needs are constantly changing.
Because, for the universities, the projects were scoped and budgeted before the referendum went to
the voters, changes had already begun to occur by the time the campuses began developing
schedules. With the scope and budget being set before the program went to the voters, the
legislation allowed for changes, but only with the approval of the legislature. Thirty‐four scope
changes were approved for the universities, or a little over 10% of the program. The scope changes
varied including reducing scope, deleting the project, and adding new projects. During the life of
the program, the textile and furniture industry workforces were forced to seek alternative skills.
As local communities suffered plant closures, community colleges experienced significant strains on
their space and resources. The flexibility to change scope allowed universities and community
colleges to continue to meet the needs of their respective communities.
The flexibility to move funds between projects was also important to the ability of these
groups to spend funds cost effectively. Inflation varied over the life of the program. Many
university campuses reduced budgets on early projects, when the economy was down and bids
were low, and put those funds into later projects, to allow for inflation. If the campuses had not had
that capability, as in the case of single funded projects, the projects that were executed later in the
program would have been noticeably reduced. At the community colleges, similar needs to increase
project budgets or decrease scope resulted from inflationary pressures, but their efforts were
complicated by the need to approach county commissioners in their respective project areas in
order to ask for more money for the project, move money between projects, or eliminate projects.
A community college analysis during the program showed a 37% per square foot cost increase from
projects completed in 2003‐2004 to those under construction in 2005. Although a program
approach cannot mitigate the impact of market forces such as oil markets on asphalt prices or
construction for the Olympics in Beijing on concrete, it does allow more choice over where the
impact is felt. The ability to manage funding across the group of projects in the program allowed
both organizations to achieve the most benefit for the available funding.
Oversight
As part of the legislation authorizing the bond program, an oversight committee was
established to meet quarterly. The program was fortunate to have the same co‐chairs for the entire
duration, which provided consistent management oversight and an understanding of the history of
HEBOC Final Report
23
the program as it unfolded. Both the university and community college systems needed central
staff support to provide cash flow forecasting to the State Treasurer, quarterly reports to the
HEBOC, and generally oversee the program and provide consistent information across campuses.
This central administrative level, at both the university and community college system, provided
review and feedback to ensure accountability for the program, but the existence of a legislative
committee forced a level of discipline and accountability that contributed to the program’s
successful delivery on budget and on schedule.
Further, because the projects were funded from the sale of general obligation bonds, they
had to be expended in a timely manner, necessitating that each project also be administratively
closed in a timely manner. The existence of the oversight committee, whose responsibilities would
end at the conclusion of the program, also put pressure on closing all project aspects, not just
occupying a facility. This had the benefit of forcing true project completion, including promptly
obtaining final documentation which has traditionally been difficult and closure of the accounting
records, which had historically extended years beyond building occupancy. Even with these
pressures, closing projects has continued to be challenging and in most cases took over a year from
the time of actually occupying the facility. While some would argue that another review
organization contributes to bureaucracy, in practice it has ensured that performance was taken
with due seriousness. Just as a teacher finds discipline support in her principal, the oversight
committee provided useful leverage when needed.
Professional Staff
Under the Bond Program, capital project funds were permitted to be used to hire and train
project management staff for the first time. This only applied to the university system. Several
campuses had not had a major capital project in years and were suddenly faced with 10 or more.
The campuses needed staff to manage those, and had no operating funds for staffing. The majority
of the campuses would not have been able to accomplish their programs without this funding.
While community colleges had similar staffing limitations, they were not authorized to use capital
project funds to increase project management capacity and expertise. Any future such capital
program should authorize the Community Colleges System Office to hire and train regionally
located staff to assist local colleges.
The Future of Capital Projects
As initially envisioned, the bond program would meet the first half of identified capital
needs for UNC to address the adequacy of existing space and the quantity of additional space
required to meet burgeoning enrollment as described in the report which resulted from the
legislature’s 1997 special provision mandating a “Capital Equity and Adequacy Study of The
University of North Carolina.” The need for ongoing maintenance and repair funding, both to retire
significant levels of deferred maintenance ($883M in 1998) and to continue to maintain facilities
once the backlog was addressed, was recognized.
Two events have heightened these needs, even with the advent of the bond program. First,
economic circumstances limited the availability of funding for repairs and renovations. While the
studies resulting from the 1997 special provision recommended an ongoing, annual stream of not
less than 3% of the current replacement value of all buildings plus infrastructure, funding has been
far below those levels. No repair funding was provided at all for 2001 and 2002 and limited
funding provided under debt (Certificates of Participation) in selected subsequent years. Many
facilities constructed or renovated earlier under the bond program are now in need of maintenance
or repair themselves, with inadequate funding to preserve these resources. The current backlog of
HEBOC Final Report
24
deferred maintenance is a staggering $2.92B, with needs identified as immediate (within one year)
at $1.66B.
In addition, UNC enrollment growth occurred far more rapidly than anticipated, increasing
space pressures. Projections for 2008 enrollment were met as early as 2002 for some institutions
and by 2005 for others. By 2008, most institutions exceeded their enrollment targets. See the
summary table below.
University of North Carolina Enrollment Comparisons
Institution Fall 2008 Target
Headcount1
2008 Fall
Headcount
Enrollment
(Actual)
Percentage Above
(or below) Target
Headcount
ASU 14,000 16,610 18.6%
ECU 24,000 27,677 15.3%
ECSU 3,000 3,104 3.5%
FSU 6,000 6,217 3.6%
NCA&T 10,600 10,388 ‐2.0%
NCCU 8,300 8,035 ‐3.2%
NCSU 30,100 32,872 9.2%
UNC‐A 3,500 3,629 3.7%
UNC‐CH 27,500 28,567 3.9%
UNC‐C 23,500 23,300 ‐0.9%
UNC‐G 14,800 19,976 35.0%
UNC‐P 4,200 6,303 50.1%
UNC‐SA 1,200 879 ‐26.8%
UNC‐W 12,500 12,643 1.1%
WCU 9,400 9,050 ‐3.7%
WSSU 4,200 6,442 53.4%
Total 196,800 215,692 9.6%
1 From "The University of North Carolina Capital Equity/Adequacy Study
Phase II Work Paper II‐B‐9, Enrollment Driven Capital Needs, March 5,
1999," Figure 5, page 13.
By 2008 in the Community College System, 55% of the colleges were below the industry
standard for assignable square feet per full‐time equivalent student, as a growing number of
students entered the system for re‐training to improve their employment prospects and transfer
students increasingly turned to the system as an affordable way to begin their pursuit of a four‐year
degree. In the last academic year, alone, full‐time equivalent (FTE) student enrollment at
community colleges has grown from 216,945 to 246,710, a collective 30,000 FTE; roughly the size
of NC State University, the State’s largest public university. While online instruction supported
24% of that growth, the remaining growth was served in traditional classroom settings or through
a combination of traditional classroom and distance education. Clearly distance learning has played
a key role in the ability to serve these students, but there are limits to the types of classes that can
be effectively provided online. Distance learning is not an effective teaching method to train nurses,
dental hygienists, welders, and carpenters who need face‐to‐face, hands‐on instruction.
Current demographics predict space will be needed for an additional 70,000 students in the
next 10 years. While some needs may be met by online learning, there will continue to be a need
for some hands‐on and traditional instructional experiences. The successful completion of the bond
HEBOC Final Report
25
program may have bought some time in terms of facilities needs, but the dual pressures of funding
repairs and meeting enrollment growth needs mean that the work cannot end with the completion
of this program. In the 1999 report to the Board of Governors under the legislative “Capital Equity
and Adequacy Study,” it was noted that “…there is a new round of work to be done—to help assure
the competitiveness of the people, businesses and communities of North Carolina….” This is no less
true today and, in fact, has been reinforced in the UNC Tomorrow Commission’s final report
(December 2007) which renews the State’s commitment to education, ensuring access to higher
education, and preparing its citizens for engaged, productive lives. Will the university and
community colleges be ready?
HEBOC Final Report
26
Sources
Portions of this document were compiled from previously released reports including:
Building for the New Millennium – A Report to the University of North Carolina Board of
Governors, April 9, 1999, Eva Klein & Associates, Ltd.
Responding to a New Imperative – A mid‐term progress report on the 2000 Higher Education
Bond Program, North Carolina Business‐Higher Education Foundation, Inc., 2004.
The University of North Carolina Capital Equity/Adequacy Study – Phase II Work Paper II‐B‐9,
Enrollment Driven Capital Needs, March 5, 1999, Eva Klein & Associates, Ltd.
UNC Bond Report to the Higher Education Bond Oversight Committee, Quarterly.

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Higher Education Bond Oversight Committee
Bond Program
Final Report
September 2010
HEBOC Final Report
2
Executive Summary
Facility Adequacy/Enrollment Growth – Aging facilities, repair backlogs, and space needs pushed by
higher education enrollment growth required visionary capital solutions.
In 1999 the UNC Board of Governors approved Building for the New Millennium. The
exhaustive report documented outmoded buildings, a huge backlog of deferred maintenance, and a
looming shortage of critical science and technology facilities on the University of North Carolina
(UNC) campuses and affiliates, including UNC‐TV. The North Carolina Community College System
(NCCCS) also completed the fourth phase of its Funding Formula Study, recommending a new
capital outlay model featuring an ability‐to‐pay index for low‐wealth counties. Clearly, a number of
existing facilities were inadequate and substantial enrollment growth was anticipated. In response,
the General Assembly authorized a $3.1 billion bond referendum and with the support of the voters
in November 2000, the largest capital bond issue for higher education in U.S. history was passed.
A Planned Program – A comprehensive and funded multi‐year capital program provided for more
effective use of human and capital resources, and resulted in superior execution.
A total of 728 projects, involving new construction or renovation, were completed at
universities and affiliates associated with the UNC system and community colleges throughout the
State under the bond program. The existence of a capital program, itself, with a funding
commitment over several years provided a level of project coordination and planning unheard of in
the era of individual project requests. This cohesive program permitted more effective sequencing
of projects for the universities, including improved ability to address infrastructure needs and
swing space. While the community colleges were not fully able to take advantage of this benefit
because they did not have planning funds to position themselves prior to the bond’s passage, they
have subsequently received funding and completed master plans for each campus which will allow
them to do so in the future. The focus and leverage provided to program managers because of the
higher level oversight found in the Higher Education Bond Oversight Committee (HEBOC), provided
a level of accountability that improved performance.
Bond program projects fulfilled a broad range of needs from additional classroom spaces,
modern science facilities, student service spaces, libraries, and residence halls, to infrastructure for
electricity, heating, cooling, communications, and land acquisition. With additional funding from
State appropriations, repairs and renovations funds, county contributions, and non‐appropriated
sources such as grants, receipts, and gifts, the total amount of funding exceeded $4 billion.
Job Creation – Capital infusion during economic recession created jobs, stabilized the construction
industry, and provided permanent value‐added improvements.
With the economic recession of 2000‐2001, the bond program provided a critical funding
infusion to keep the construction industry afloat until the economy could begin to recover. Within
just the first three years of the program 33,000 jobs were generated from the University’s portion
of the bond program alone. By the end of the program, more than 118,600 jobs were created or
saved. Bond funding was expended in every county across the State. The productive output
resulting from these jobs generated permanent improvements in infrastructure and facilities for
the State.
HEBOC Final Report
3
State Treasurer – Timely bond issuance saved interest expense while supporting project progress.
The program could not have been successful without the Treasurer’s commitment to the
timely issue of bonds to meet cash flow requirements. In both the universities and community
colleges, schedules were generated for all of the program’s projects, updated monthly, and
consolidated into cash flow projections for communication with the State Treasurer’s Office to plan
for appropriate bond sales to support the work. Bond issues were timed to allow the bond program
to proceed unconstrained by cash flow requirements and favorable market conditions resulted in
interest rates that saved the State an estimated $390.5M in interest under initial program
projections.
Program Management – Consistently monitoring and reporting key program measurements
ensured success.
One of the biggest keys to the program’s success was program management involving
ongoing schedule, cash flow, HUB participation, and scope monitoring, as well as regular, frequent
reporting on the entire program. While the Community College System performed well with
limited resources and absent a defined program at the outset, the UNC System was outstanding in
managing the program to achieve the goal of delivering the program on budget, on schedule, and
within scope. The universities used a project management software system, “Primavera,” to
provide cash projections which were tied to the schedules and so revised as schedules were
revised. The Community Colleges System Office consolidated spreadsheet updates from their local
colleges into an overall cash flow projection. These data sources were also used for monitoring
project progress, identifying and addressing issues affecting success, and reporting to the Higher
Education Bond Oversight Committee (HEBOC).
HUB Participation – A commitment to HUB strategies has provided business opportunities to the
HUB community.
Legislation, enacted during the program, changed the primary construction delivery
methods in use and enhanced opportunities for historically underutilized businesses (HUB).
Effective January 1, 2002, agencies were permitted to routinely use single‐prime bidding or
Construction Manager at Risk (CM@R) construction delivery methods, and goals and strategies
were set for improved HUB participation. The change in construction delivery methods had a
substantial impact on the program’s ability to attract sufficient construction industry participation
to build large, complex projects, preserve competition, improve the quality of construction, and
minimize claims.
The HUB strategies provided opportunities for these firms to participate in the economic
benefits of the bond program and actual HUB participation that exceeded established goals.
However, the perception exists that even higher HUB participation is achievable in the future,
particularly for African‐American firms. Increasing sensitivity to diversifying contract awards
among all minority classifications of HUB firms is critical. Because construction project awards are
made based on the lowest bid, successful HUB participation is predicated on successful bidding by
these firms. They must be positioned to compete more effectively if participation is to increase.
Larger scale firms, capable of larger, more complex work must be fostered, and improved access to
financial markets for working capital, bonding, and competitive procurement of materials and
supplies must be available.
HEBOC Final Report
4
Lessons Learned – Experience in this program showed the critical value of planning, scheduling,
staffing, communicating, and auditing.
Throughout the bond program, each experience provided a learning lesson to inform future
project success. Having a road map for the future in the form of master plans sets the stage. A
schedule that all parties to the process monitor and measure consistently, ensures that everyone is
committed to and following the same path. Sufficient human resources including plan reviewers
and trained owners are essential ingredients. The ability for the universities to use capital funding
for staffing in support of the projects made resources available and success possible. The
community colleges were not afforded this opportunity, but allowing the Community Colleges to
use funds in this manner would greatly benefit a future bond program. In addition, there is an
ongoing need to expand the breadth of construction community involvement via HUB firms. And,
as is true of almost all endeavors, communications is a vital ingredient to success. Finally,
monitoring quality through selected audits provides a checkpoint to continue the cycle of
improvement.
Conclusion – The bond program’s projects met a vital need at a critical time. It was visionary and
well executed but significant needs still remain.
Each individual project has a story. Some are triumphs over adversity, but all have filled
important needs for the university and community college campuses on which they exist. North
Carolina has a long history of commitment to higher education and it has been well‐served by the
completion of the bond program. In the 1999 report to the Board of Governors under the
legislative “Capital Equity and Adequacy Study,” it was noted that “…there is a new round of work to
be done—to help assure the competitiveness of the people, businesses and communities of North
Carolina….” This is no less true today and, in fact, has been reinforced in the UNC Tomorrow
Commission’s final report (December 2007) which renews our State’s commitment to education,
ensuring access to higher education, and preparing its citizens for engaged, productive lives.
Overview
In the fall of 2000, citizens of every county of North Carolina, including over 70% of all
voters, approved the Higher Education Bond Program which included $2.5B for the University
System and $600M for the North Carolina Community College System. This section is intended to
provide a broad overview of both programs.
Projects
The programs were totally different in that the legislation defined 316 projects with scopes
and budgets for the university system, but only a lump sum budget amount for the community
colleges. Because the community colleges did not have planning monies available to them, they did
not have projects designed or ready to begin design at the program’s outset. As a result, their plans
changed over the life of the program. By July 2005, the community colleges’ cash flow model
identified 392 projects, 47 less than the initial list. This reduction was due primarily to increased
construction cost during the 2004‐2005 time frame, combining repair and renovation projects, or
abandoning projects altogether. By December 2009, their cash flow model identified 409 projects.
With legislative approval of changes, the university system ended the program with a net 319
projects.
HEBOC Final Report
5
The chart below describes the nature of the program’s projects across the universities and
community colleges.
Funding
In order to meet the overall needs of the University campuses, the initial bond program plan
involved a shared funding arrangement with the bond program to provide 60% and the campuses
40% of the needs, which would have equated to an additional $1.67B. The campuses brought
additional projects such as residence halls and student services facilities, over and above the bond
program, contributing over twice their expected share for a total additional contribution of $3.6B
The campuses also brought supplemental funding of $667M directly into bond program projects, as
shown in the table below. Community college bond funds were broadly designated with
$498,702,279 for new construction and $101,297,721 for repair and renovation and most were
required to provide some matching local funds in order to receive bond funds.
Both systems supplemented bond funds with other sources including state appropriations,
repairs and renovations funding, county funds, and non‐appropriated sources such as receipts,
grants, Title III, and gifts. The university campuses’ total appropriated addition to bond projects
was $84.9M and the non‐appropriated was $581.6M, making the total funds expended $3.167B,
excluding the additional $3.6B in projects funded entirely without bond sources. The community
colleges brought an additional $327M to their program, making their total $927M.
Bond and Supplemental Funds Summary
HEBOC Final Report
6
Economic Impact
At the outset of the bond program, moving into 2001, the state and nation were
experiencing an economic recession. As private‐sector construction work slowed, the bond
program was cranking up, providing an opportunity for the industry’s design and construction
firms to hold on until the larger economy was re‐energized. No bids opened over budget for the
first 75 university bond project bid openings. By December 31, 2003, there were 86 bond projects
under design, 154 under construction, and 41 already completed within the university system. “In
the first three years of the bond program, more than 33,000 new jobs were created throughout the
state by the construction of bond‐financed buildings in the UNC system alone. The bond
construction program under way in the UNC system is a bright light in still often dark times for the
construction industry in North Carolina,” said Steve Gennett, president and CEO of Carolinas AGC
(Associated General Contractors). “Its positive impact also is having a ripple effect across the state.”
Ultimately, over 46,700 jobs were created from University bond‐financed construction projects
alone and more than 118,600 over the life of the entire program, including bond and other funding
contributions for both the University and Community Colleges.
The program became the modern “Works Progress Administration” (WPA) program for our
times. Bond funds were expended in counties across the state and in substantial amounts in many
as illustrated below.
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Statistics
• University
􀂃􈌳 316 projects in legislation, 34 scope changes, 8 projects added, 5 projects deleted
􀂃􈌶 6M square feet added
􀂃􈍔 Total dollars paid to designers ‐ $286.3M
􀂃􈍔 Total dollars paid for construction ‐ $2.562B
􀂃􈌸 86% of design dollars and 97% of construction dollars went to firms having
permanent offices in North Carolina
􀂃􈍇 Greatest expenditure in one month ‐ $60,885,176, November 2004
􀂃􈍇 Greatest number of projects active at one time – 255, June 2004
􀂃􈍇 Greatest number of projects in design at one time – 153, November 2001
􀂃􈍇 Greatest number of projects in construction at one time – 163, June 2004
􀂃􈍇 Greatest dollar amount under contract at one time ‐ $1.244B, July 2005
􀂃􈍌 Largest single contract ‐ $88,816,259, UNC‐CH Science Phase I
• Community Colleges
􀂃􈍇 Greatest number of projects active at one time – 213, July 2005
􀂃􈌶 6.1M square feet added
􀂃􈍇 Greatest number of projects in construction at one time – 116, July 2005
􀂃􈍌 Largest project – Project Budget ‐ $27,501,108, Wake Technical Community College,
Northeast Campus Development (Building & Infrastructure)
Scheduling/Cash Flow
The bond program was the first substantial capital initiative in North Carolina that was
based on a funding stream provided through debt financing, rather than full project appropriations
in‐hand prior to beginning a project. As a result, the need to develop and maintain project
schedules and related cash flow in order to predict borrowing needs was a vital component of the
program. Both the university and community college systems used mechanisms to aid in this
process.
Within the university system, early campus project schedules were prepared manually, with
only the use of Excel spreadsheets. The first comprehensive schedules, including the April 2002
baseline, were prepared using Microsoft Project as the scheduling tool. Because of the need to
predict cash flow requirements in order to plan bond purchases, alternative planning tools were
assessed, as Microsoft Project did not easily support this activity. In early 2003, the decision was
made to use Primavera Enterprise Scheduling software, and the system was brought on line in
September 2003.
The system was established with all project schedules in a single database. This permitted
review of a single project’s details or the roll up of information for a higher level overview by
campus or of the overall program as illustrated in the screen which follows.
HEBOC Final Report
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Templates for different project types were established and used as the starting point for
each project’s schedule. This insured consistency for specific activities, such as design milestones,
agency plan reviews, bid dates, etc. Costs were assigned to appropriate activities, and the total of
all costs were required to sum to the total project budget. This cost loaded schedule became the
basis for cash flow forecasting. Campuses were responsible for establishing and maintaining their
own project schedules, with updates required monthly. Baselines, a snapshot of the schedule, were
created every quarter so that progress could be monitored over time. A sample schedule is shown
below.
Having a single database that permitted review of an individual schedule for any project on
any campus, the campus overall, or the entire program was a key part of managing the program and
providing oversight to the Higher Education Bond Oversight Committee (HEBOC). Comparing
progress over time, utilizing appropriate baselines, allowed General Administration to quickly
identify problems and pursue them with the respective campuses.
The Primavera software tracks each activity, its duration, the dollar values associated with
it, and a cash distribution curve, and computes the cash flow for that activity. It then sums all of the
HEBOC Final Report
9
cash flow for each project, so that expenditures may be predicted for any given time interval over
the life of the project. This feature, rolled up to the campus level for all of their projects and then to
the program level, was used to forecast cash flow on a monthly basis. Using a standard project
management axiom that “dollars spent equals work accomplished,” the forecast cash flow was
compared against expenditures as a gauge of the accuracy of the schedules, and thus of work put in
place. As with the baseline schedules, this provided an early warning mechanism that allowed
General Administration to focus on and address project issues with the respective campuses to
maintain budget and schedule adherence.
The cash flow forecast for the program that was generated from Primavera was also used to
help the State Treasurer determine the timing and amount of bond sales. This helped control the
cost of the program by minimizing unnecessary debt service. Bond issues were timed to allow the
bond program to proceed unconstrained by cash flow requirements and favorable market
conditions resulted in interest rates that saved the State an estimated $390.5M under initial
program projections. The chart below shows the ‘just‐in‐time’ nature of bond sales to meet UNC
expenditures.
In addition, by taking advantage of the database supporting the Primavera application,
various information related to each project such as scope, budget, other fund sources and amounts,
milestone dates, etc. was stored in the database and used in reporting program progress. This
resource simplified reporting, particularly the quarterly HEBOC report, with a dramatic (96%)
reduction in production time over reports prepared in the early months of the program. The
improvement in production efficiency for this report, alone, resulted in a savings of approximately
$1.8M over the life of the program, allowing these funds to be directed at program needs rather
than reporting requirements.
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Within the community college system, early cash flow projections revealed cash shortfalls.
As a result, the colleges were called upon to reexamine their optimistic project start dates and move
them to more realistic timelines, keeping in mind the schedule of the bond sales. Many of the larger
colleges could have moved their projects forward more quickly. However, allowing them to do so
could have delayed projects at many of the smaller colleges because of limited funds availability
based on the scheduled bond sales.
The Community Colleges System Office staff populated individual models updated by the
colleges, into one spreadsheet to determine cash needs for dialog with the State Treasurer’s Office.
The requirement for county matching funds made cash flow prediction particularly challenging.
While individual projects could be identified, scoped, budgeted, and planned, the reliance on county
governments to determine if, when, and how much matching funding would be available could
change a project’s schedule and related cash flow overnight. Responsive cash flow planning under
these trying circumstances required greater project management systems and human resources
than the community college system found at its disposal during the program. On the community
college campuses, the person that managed the cash flow model, as well as overseeing construction
projects, was typically one individual, usually the Vice President for Business & Finance or
Administration. That person was responsible for the colleges’ budget, day‐to‐day operation of
cafeterias, bookstores, purchasing, security, and the maintenance of facilities. Sufficient staff was
not available on each campus to manage these facilities, construction projects, and operations. In
fact, it is rare for a community college campus to have a facilities engineer in their employ. These
staffing levels, skill sets, and competing job responsibilities made project schedule and cash flow
projections particularly challenging for the community colleges.
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11
Construction Delivery Methods/Construction Manager at Risk (CM@R)
Prior to the Higher Education Improvement Bond Program, multi‐prime contracting was
the standard construction delivery method in North Carolina, with single‐prime permitted under
specific bidding conditions. In multi‐prime contracting, the owner holds separate contracts with
the general, electrical, mechanical, and plumbing contractors, each of whom bids separately and
may or may not wish to work together. In single prime contracting, the owner holds a single
contract with the general, who must then be responsible for securing and coordinating trade
contractors. In both cases, construction contracts are awarded based on lowest responsible bid,
which may not necessarily result in the best overall value.
Senate Bill 914, enacted in 2001 and effective January 1, 2002, routinely allowed single
prime and Construction Manager at Risk (CM@R) construction procurement methods. The
legislation also specified a qualification‐based selection process for CM@R with fee to be negotiated
after selection. This selection process permits the owner to select a firm best suited for the specific
project. It also allows the contractor’s record of previous performance to be considered in the
selection decision. In preparation for this legislation, the University System worked with the State
Construction Office and the State Attorney General to develop a set of procedures and new CM@R
documents.
Single prime and CM@R construction delivery were necessary to execute the program, as
many of the projects were large and technically demanding, particularly at the universities. Many
competent contractors simply would choose not to work in the litigious, multi‐prime contracting
environment. Many of the larger contractors needed to execute the program would not bid on
multi‐prime projects, and some would not bid at all, but worked only under CM@R or negotiated
construction contracts. While the university system used both contracting methods, executing a
total of 35 CM@R projects, the community college system’s projects were largely single prime, with
only a single CM@R project experience. The award of a single prime contract eliminates a
significant source of conflict and minimizes the number of players involved in a project’s execution.
With the increased collaboration that results from selecting your own team under CM@R
contracting, projects become more of a partnership working toward a common goal, instead of an
antagonistic struggle.
Evidence of the success of the single prime and CM@R construction methods can be found
in the small number of claims the bond program experienced. A total of 17 projects at UNC and 3 at
the community colleges involved formal claim filings. The result, within the university system, was
a net payout of slightly less than $1.5M against more than $18M in claims by contractors and
designers and within the community college system a net payout of just over $473,000 against
$1.1M in claims. Overall, there were claims totaling $19.3M against the program’s $4.094B, or less
than one‐half of one percent of the program involved in claims.
As with any new process, there was a learning curve, both for the university campuses and
for the contractors. There were training sessions and coaching by General Administration to
minimize problems and ensure that the new procedures were understood and followed. Under
CM@R, trade subcontractors bid competitively and publicly. Teaching trade and specialty
contractors to prepare bids and bid publicly rather than simply quoting prices to a contractor was
challenging, especially in the early stages of this construction delivery method. Successful
execution of a CM@R project requires active participation from all team members involved in the
process; the CM, the owner, and the architect. In some cases, getting owners and architects to
assume their roles as team members in such a participative design process has also proven
challenging, but as this construction delivery method has matured and all players have gained
experience, these challenges have lessened.
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Some challenges remain a work in progress. Because the CM@R fee is negotiated after
selection, it is critical that agreements be clear regarding the components of the project’s cost,
whether part of the cost of the work, the general conditions, or the fee. Reaching clarity on “General
Conditions” as an element of project cost continues to be refined.
Based on a published study comparing construction delivery methods, “Selecting Project
Delivery Systems” published by The Project Delivery Institute in 1999 (the only such study the
authors have been able to identify to date), there is some minimum cost saving, but significant time
saving for CM@R compared to the traditional design‐bid‐build method. In fact, selecting the CM@R
under a qualifications‐based selection process increases the likelihood that the contractor will be
well‐suited to the project, with size, experience, and current capacity to perform well and assure
the best possible quality in the finished product.
While it may appear that there is reduced risk with a post bid GMP when all subcontractor
prices are known, there are many risks in the construction business, only one of which is financial.
It is true that the financial risk associated with subcontractors may be eased, but the CM must still
manage the project within the parameters of the negotiated general conditions and fee in order to
be financially successful. The real risk for the CM remains to perform well, including on schedule
and with the required level of quality throughout the life of the project and, remember that award
of future work will be made on a qualifications‐based selection process. Under overheated
economic conditions, such as those experienced in 2004 and 2005, shared risk under CM@R with
timely preliminary or final GMPs can insure a sufficient pool of competitive bidders and keep prices
from being inflated in order to cover excess risk associated with volatile price markets.
In the North Carolina CM at Risk process, all unused funds from the cost of the work,
general conditions, and CM contingency return to the owner, offering little incentive for the CM to
pad estimates. As a result, there has been little evidence of excessive estimates, although the 2008‐
2009 economic downturn has resulted in receipt of a number of bids below the CM’s estimate.
The CM@R construction delivery method has contributed significantly to current capital
project construction success. Having the contractor at the table during the design process to
validate cost estimates, suggest modification to design details that simplify and speed construction,
and to establish common expectations with regard to project schedule minimizes surprises during
construction and so improves project execution. Establishing a team approach to the project
planning and execution ameliorates the sometimes adversarial relationship between owner,
designer, and contractor. Finally, because CM@R permits the development of a specific plan of HUB
outreach and inclusion, coupled with subcontractor bid packages broken into sizes suitable for
smaller firms who may not otherwise be successful in competing for projects, CM@R has been
successful in achieving significantly higher minority participation over other methods of
construction project delivery; in the 20% range achieved through CM as compared to 15‐16%
achieved through other contracting methods.
HEBOC Final Report
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Historically Underutilized Businesses (HUB)
Session Law 2001‐496 Public Construction Law Changes (Senate Bill 914), the University
Board of Governor’s Policy of equal access for construction contracting, and the subsequent
development of a University HUB Plan, provided a basic strategy to promote equal and increased
opportunities for all segments of the design and construction community to participate in
University construction projects. The Plan identified a methodology of:
• Identification, Recruitment and Certification
• Outreach & Education
• Legislated Good Faith Efforts
• System Program Monitoring
• System Reporting
Within the university system, liaisons and/or coordinators at the institutions were
designated to implement the HUB Plan. The following charts demonstrate the system results.
Overall minority participation was 16.7%, including design and construction contracts, which
significantly exceeded the 10% goal identified in SB914. The chart below shows the breakdown of
this participation by classification, with minority classifications combined into three categories.
“Other Minorities” combines Hispanic, Native and Asian Americans, and Socially and Economically
Disadvantaged into a single category, while African American and Women‐owned businesses are
identified separately.
HEBOC Final Report
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HUB participation varied across UNC institutions as indicated in the chart below which
shows the percentage of design and construction contracts awarded to HUB firms out of the total
dollar amount of contracts awarded by each constituent institution and affiliate.
Within the university system, project size and construction delivery method (i.e. hard bid
vs. CM@R) played a significant role in determining the level of HUB participation, especially for
African American firms, as illustrated in the following charts. The first chart shows significantly
increased African American participation for CM@R projects and smaller contract sizes.
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Because all construction project awards are made based on the lowest bid, as a matter of
standard procedure, firms of limited scale and organizational structure, sporadic contracting
opportunities, and financial disadvantages have diminished contracting opportunity. The CM@R
process can include opportunities to reduce these barriers to success, increase outreach efforts, and
mentor aspiring firms. Informal contract processes allow for limited bonding requirements and
provide opportunities for manageable project size, relationship‐building, and repeat contracting for
firms that perform well. A targeted, creative, and committed approach is needed to foster growth
for small firms and increase their success in competitive bidding.
Projects constructed under the CM@R construction procurement method accounted for
roughly 32% of the program’s construction contract value, yet contributed 40% of the HUB
participation. CM@R projects are required to provide a pre‐defined HUB Plan, which can be fine‐tuned
to meet specific HUB participation objectives, and to prequalify subcontractors who then
compete, on a lowest bid basis, for each trade package. As noted earlier, CM@R projects have
performed above the norm for HUB participation. Reduced barrier packages targeted for HUB and
small firms create smaller, more biddable packages which address bonding and capacity
impediments. These efforts have produced results. In addition, many large CM’s have been
receptive to partnering and mentoring emerging HUB firms to prepare them to handle small CM@R
projects. This exposure is a key component of capacity building. In the future, both of these
components of CM@R are anticipated to provide the construction opportunities that some small
firms need in order to grow larger, establish a track record of good performance, and build financial
and bonding capacity.
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For the community colleges, HUB participation is as illustrated below.
The staff of the Community College System Office has communicated to the community
colleges the need for increased efforts regarding individual campus HUB participation, which
currently varies widely, as illustrated in the chart above. A committee has been established and will
work to develop detailed processes that colleges should engage in for all future construction
projects. This committee held their first meeting on Friday, March 5, 2010 to establish committee
goals.
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Overall HUB participation for the bond program, for both UNC and the Community College
System, is illustrated below.
Despite the current bond program’s successes in HUB participation, it is evident that more
can and should be done to create an environment for the successful startup, growth, and
development of small businesses and HUB firms in particular. These emerging firms need access to
capital, competitive bonding, insurance and materials procurement opportunities, and professional
training opportunities. By laying the groundwork that fosters development and strengthens
infrastructure, these firms can gain experience by competing on larger projects. Opportunities for
tutelage under larger, more experienced firms can facilitate a stronger subcontracting, general
contracting, and construction management foundation in the state. Additional efforts are needed
to engage more diverse participation across HUB categories. Above all, a continued commitment is
needed from all parties to the process to continue and expand good faith efforts.
HUB construction participation within the UNC system increased from 11.1% to 16.9%,
from the initial bond program report in 2002 to the end of the program. Early in the program,
though, it became apparent that the available pool of HUB firms consisted predominately of trade
subcontractors and general contractors at limited licensing levels. These small firms, for the most
part, had limited financial, bonding and organizational capacity, along with limited exposure to
public bidding and university/community college contracts. As evidenced by the data on contract
size shown above, the majority of successes are on small jobs which do not require bonding,
provide quick pay, do not devastate cash flow (crucial to any entity's survival) and have a targeted
effort by the owner to include these emerging businesses in bidding opportunities. Only through a
consistent and high volume of contract opportunities can these same firms begin to build a portfolio
of jobs adequate for consideration by sureties, financial institutions, and owners, in order to expand
HEBOC Final Report
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to projects of increasing size and develop their capacity to the next level. Of the more than 118,600
jobs generated as a result of the entire bond program, it is estimated that more than 18,500 were in
the HUB contracting community.
Without the provision of necessary financial support by capital markets, it is unrealistic to
expect any measure of “good faith” efforts, outreach, training or mentoring will generate
opportunities that promote the emergence of viable, competitive small to large HUB businesses in
the state. The challenge of growing any small business without adequate access to capital and
bonding is daunting. In addition, many firms need ongoing, readily available access to resources for
developing their organizational structures and internal infrastructures. In recent years, legislation
(S.L. 2007‐441 Small Business Contractors Act) began opening the door for financial support,
absent the necessary funding which is essential for success. In the 2010 session, legislation passed
(HB 1035, SL2010‐148) that matches the bonding requirements of smaller projects to the
previously legislated threshold for informal projects at $500,000. This, and other phased bonding
policies, can foster small business growth.
The enormous need for training to equip contractors to compete for bond projects was only
partially addressed through the HUB Academy. The Academy was developed and initially steered
by the UNC campuses and General Administration, in partnership with the Carolinas Associated
General Contractors (CAGC), the North Carolina Institute of Minority and Economic Development,
and a few large, majority‐owned construction firms. The program received support from the
General Assembly and administration of Academy funds was subsequently transferred to the
guidance of the State Construction Office. The Academy provided a basic background in
construction‐related business practices such as project management, scheduling, reading
construction blueprints, estimating, and bidding, as well as organizational structures, public
contracts, risk management, and lien and bond law. Twelve Academies were held with instructors
provided through a combination of university staff, CAGC members, and majority contractors. Class
sizes ranged from 16 to 40 business owners and staff each, and were held in several regions of the
state. As funding was exhausted, the program developed additional partnerships with supporters
such as the North Carolina Department of Transportation (NCDOT). The program is currently
suspended due to lack of funding. A revitalization of this or similar initiatives is needed to further
level the playing field, enabling HUB firms to be better equipped to take advantage of business
opportunities and improve their abilities to realistically compete.
Finally, a strengthening of legislated Good Faith Efforts (GFEs) which are intended to insure
that HUBs are provided an opportunity to successfully bid on state projects is needed. GFEs, alone,
are not sufficient, as frequently making a good faith effort simply became a replacement for meeting
participation goals. A minimal effort is required to demonstrate good faith. Contracts are awarded
based on low bid and many HUBs are disadvantaged by:
• lack of access to capital, such as lines of credit,
• lack of competitive pricing of materials and supplies comparable to larger, more
established firms, and
• a slow‐to‐develop relationship network, still in its infancy by most standards, with
larger construction firms and traditional suppliers.
Good faith efforts will not be sufficient to foster increased HUB participation, absent
progress in these other areas. It is clear that some combination of all of these measures is required
to continue to bolster success and grow HUB businesses.
HEBOC Final Report
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Best Practices
During the life of the bond program there were many learning experiences that will
contribute to more successful future capital projects. Having a road map for the future in the form
of master plans sets the stage. A schedule that all parties involved in the process must monitor and
measure consistently, ensures that everyone is committed to and following the same path.
Sufficient human resources including plan reviewers and trained owners are essential ingredients,
as is an ongoing need to expand the breadth of construction community involvement via HUB firms.
As is true of almost all endeavors, communications is a vital ingredient to success. Finally, checking
quality through selected audits contributes to the cycle of improvement.
Planning
One of the reasons the university bond program was successful in executing projects in a
timely manner is that the projects were identified and scoped in the legislation. Some projects had
preliminary planning underway that allowed a fast start. In addition, the existence of campus
master plans at many institutions supported coordinated strategies for the placement of buildings
and infrastructure. Campuses are required to have a Master Plan that is reviewed and updated on a
5 year cycle. Master Plans are critical to facility planning, especially in terms of infrastructure,
pedestrian and vehicular circulation, and parking, which are often missed when dealing with
individual projects in isolation. The fact that the bond program facilitated a comprehensive campus
strategy rather than individual projects of uncertain timing provided a better outcome.
The community college system did not have the advantage of advance planning funds and
therefore colleges did not have any plans ready when the bond referendum passed. This is evident
upon reviewing the timing of community college expenditures which began 12‐18 months into the
bond program as a result of the necessary design time. In addition, as a result of not having
projects ready to bid on bond passage, many community college projects were bid during the
construction cost peak during 2005.
Scheduling
Formally scheduling projects and ensuring that schedules were routinely used, not just
filed, marked an important change in the way capital projects were executed. Most campuses had
no experience with Primavera and little if any experience with scheduling software of any kind, so
there was a learning curve. Perhaps the hardest concept to grasp was the relationship between
cost loading, schedule updates and cash flow. Having all schedules available at the program level
was a key element for effective program management for the universities and allowed General
Administration to easily analyze the program and focus on problems and simplified reporting. By
standardizing the schedules, and utilizing milestones for key events, workload forecasts could be
provided to state review agencies, future bid dates could be published for designers and
contractors, and overall project metrics, such as time in design, review, and construction were
examined. Measurement is essential to improvement and these metrics have been used to better
schedule future projects and heighten mutual accountability between the partners to the process;
owners, designers, state agencies, and contractors. While some campuses have embraced
scheduling as a management tool, others continue to use it primarily as a reporting mechanism to
General Administration. Work remains to be done to fully benefit from this scheduling tool at all
institutions.
Staffing
The University System was allowed to use 5% of project funds for project management,
providing temporary funding for staffing, but no provision was made for increasing resources at the
HEBOC Final Report
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community colleges as noted previously, or for the State review agencies. As a result, reviews
sometimes delayed the capital project process. The original schedule for reviews was 30 days to
review Schematic Designs (SDs), 30 days to review Design Development (DDs) documents, and 60
days for review of Construction Documents (CDs). As the queue lengthened for reviews, and
therefore their turnaround times lengthened, representatives from General Administration began
meeting regularly with representatives from the State Construction Office (SCO) and the
Department of Insurance (DOI) to try to mutually improve the process. General Administration
began providing quarterly forecasts of projected reviews as a planning tool for the review agencies.
A combination of events including staffing levels, workload, and the need for plans to be
resubmitted resulted in some projects at the height of the program experiencing six months or
more in review time alone. Legislation provided additional positions, but not in time to help the
bond projects. However, legislation has also changed the number of review agencies involved and
so provides encouraging signals for future capital project processes.
Training
Even when funding provides for additional staffing, resources may remain insufficient if
appropriate training is not provided. Staffing the university campuses to handle the project
workload proved to be challenging, even with the 5% funding availability and many of the new staff
had no experience in the State system. New staff members were provided Capital Project
Coordinators (CPC) training under the auspices of the State Construction Office and an additional
capital project orientation course by General Administration staff, focusing on the policies and
procedures unique to the university setting. Quarterly meetings were held with people from each
campus that were responsible for the bond program to discuss emerging issues, lessons learned,
problems, schedules, and generally share information. This group was known as the Bond Alliance.
The spring and fall meetings were expanded to include all project managers, and related functions
and topics such as facilities operations. Specific training courses were provided in environmental
permitting, managing construction claims, and administratively closing projects.
HUB Firm Capacity
Before additional substantial progress can be made in HUB participation, HUB firms of
significant capacity must participate in the public construction process. The vast majority of HUB
participation is currently taking place on very small, informal projects (less than $300,000),
requiring a large volume of contract awards for a significant increase in the dollar value of HUB
contracts and a commensurate increase in HUB participation percentages. Transitioning a small
firm to an emerging larger firm, capable of larger project work, requires knowledge on the firm’s
part of how to effectively grow their business; moving from doing the work to managing the work.
Owners must be stringent in reinforcing goals from the top down, awarding contracts on
achievement of the participation objectives and not just the effort. The term ‘responsive’ must be
clearly defined and used diligently when awarding projects. Equally important is the requirement
of systemic support for access to capital, buying agreements, bonding, and other resources. A more
diverse utilization of HUB firms will better serve the University’s goals of inclusiveness.
Communicating
The value of timely communication with all stakeholders in the capital project process
should not be underestimated. Many problems were avoided because of regular contact that
provided a forum for raising and resolving issues. The Bond Alliance, as noted above, met quarterly
during the program to share questions and experiences. Where one institution raised a problem, in
many cases another institution had experience that could provide a solution. Routine meetings
with the Carolinas Association of General Contractors (CAGC), the American Institute of Architects‐
North Carolina (AIA‐NC), and American Consulting Engineers Council (ACEC), provided a conduit
HEBOC Final Report
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for issues to be raised from a service provider/contractor’s perspective. Also, meetings with review
agencies (State Construction Office, Department of Insurance) facilitated mutual rather than
adversarial problem‐solving approaches when long review times were a frustrating part of
everyday project management. Keeping communications channels open and maintaining regular
contact, not just incident‐driven dialog should be a best practice that extends far beyond the bond
program experience.
Auditing
Finally, checking the quality of work is always a good practice. A number of independent
audits were performed on selected projects within the university system, and were valuable for
identifying and addressing potential problems. Audits of CM@R projects highlighted some
misclassified expenses and release of payments that allowed these areas to be tightened following
sharing of this information across the system. Savings resulted in subsequent projects. The
community colleges performed a control audit to ensure that procedures were being uniformly
followed. A few audits, reasonably early in the program, generated benefits that would not have
been achieved had any audits been relegated to a closing activity and ensured consistency and
transparency important to the tax‐paying public.
The Lessons of Experience
Capital Program vs. Individual Projects
With the passage of the bond referendum, the university and community college systems
had, for the first time, a known stream of capital project funding over an extended period of time.
The value of this program as compared to the authorization of individual projects was of significant
benefit for the universities, who had a known list of prescribed projects and budgets. Knowing the
scope, budget, and number of projects, allowed each campus to plan the sequence of project
execution.
The most common sequence was to build new facilities, move occupants into those facilities,
and then renovate the old facilities. This provided for more efficient swing‐space opportunities, as
one of the biggest challenges in major renovations almost always involves the provisioning of
temporary quarters for building occupants during renovation. With space tight to begin with, there
are often no feasible options. Under the individual project authorization model, space was often
unable to be converted to its best and highest use for the campus because there was no opportunity
to address swing space and the related project sequencing required. The bond program supported
this need. In addition, at two institutions, NCSU and UNC‐W, swing space was constructed and
served dual purposes; first as swing space during the bond program, and now as a solution to other,
ongoing space needs for each institution. NCSU’s project provides flexible lab space which allows
for the fluid nature of research at a major research institution.
The capital program also supported planning for necessary utilities and consideration of
traffic and pedestrian flow, as well as interruptions in these areas resulting from construction.
Infrastructure projects are traditionally hard to fund since they are not glamorous opportunities for
ground‐breaking or building naming and are particularly difficult when projects are funded
individually. Where a campus has a central or regional utility plant, it is difficult to tell which
project will trigger the need for an additional boiler or chiller. If projects are funded one at a time,
each project must include sufficient funds to pay for the additional boiler or chiller, should it be the
one to trigger the need. Again, knowing the extent of the legislated program, each campus could
decide when the appropriate time was for such an addition. Most campuses replaced and/or
expanded their utility infrastructure and contributed an additional $172M to the bond program for
HEBOC Final Report
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this. At one campus, ECSU, the ability to predict utility needs with this programmatic approach
allowed them to construct a central utility plant to support more efficient, centralized heating and
cooling.
In addition, under the individual project funding model, planning, estimating, and
prioritizing for all capital project types was typically completed on a massive scale biennially, with
fine‐tuning in the intervening years and the often unfortunate outcome that no capital or only
partial capital funding was forthcoming. This funding roulette challenged all campuses to manage
projects effectively under a high degree of uncertainty. The bond program allowed staff energy to
be focused on the thoughtful execution of the projects, with the certain knowledge of available
funds.
Because the community colleges did not have the opportunity to define projects in advance,
their benefit from this aspect of the program was limited. However, they are poised to take
advantage of any future such opportunities since they have updated master plans available. To
maximize the effectiveness of these master plans, additional planning funds are needed.
While the certainty of the bond program provided benefits, it was also appropriately
flexible in permitting changes in project scope and in moving funds between projects. Each
campus, whether university or community college, is a unique and ever‐changing entity. Academic
programs grow and shrink, driven by many factors, so the facility needs are constantly changing.
Because, for the universities, the projects were scoped and budgeted before the referendum went to
the voters, changes had already begun to occur by the time the campuses began developing
schedules. With the scope and budget being set before the program went to the voters, the
legislation allowed for changes, but only with the approval of the legislature. Thirty‐four scope
changes were approved for the universities, or a little over 10% of the program. The scope changes
varied including reducing scope, deleting the project, and adding new projects. During the life of
the program, the textile and furniture industry workforces were forced to seek alternative skills.
As local communities suffered plant closures, community colleges experienced significant strains on
their space and resources. The flexibility to change scope allowed universities and community
colleges to continue to meet the needs of their respective communities.
The flexibility to move funds between projects was also important to the ability of these
groups to spend funds cost effectively. Inflation varied over the life of the program. Many
university campuses reduced budgets on early projects, when the economy was down and bids
were low, and put those funds into later projects, to allow for inflation. If the campuses had not had
that capability, as in the case of single funded projects, the projects that were executed later in the
program would have been noticeably reduced. At the community colleges, similar needs to increase
project budgets or decrease scope resulted from inflationary pressures, but their efforts were
complicated by the need to approach county commissioners in their respective project areas in
order to ask for more money for the project, move money between projects, or eliminate projects.
A community college analysis during the program showed a 37% per square foot cost increase from
projects completed in 2003‐2004 to those under construction in 2005. Although a program
approach cannot mitigate the impact of market forces such as oil markets on asphalt prices or
construction for the Olympics in Beijing on concrete, it does allow more choice over where the
impact is felt. The ability to manage funding across the group of projects in the program allowed
both organizations to achieve the most benefit for the available funding.
Oversight
As part of the legislation authorizing the bond program, an oversight committee was
established to meet quarterly. The program was fortunate to have the same co‐chairs for the entire
duration, which provided consistent management oversight and an understanding of the history of
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23
the program as it unfolded. Both the university and community college systems needed central
staff support to provide cash flow forecasting to the State Treasurer, quarterly reports to the
HEBOC, and generally oversee the program and provide consistent information across campuses.
This central administrative level, at both the university and community college system, provided
review and feedback to ensure accountability for the program, but the existence of a legislative
committee forced a level of discipline and accountability that contributed to the program’s
successful delivery on budget and on schedule.
Further, because the projects were funded from the sale of general obligation bonds, they
had to be expended in a timely manner, necessitating that each project also be administratively
closed in a timely manner. The existence of the oversight committee, whose responsibilities would
end at the conclusion of the program, also put pressure on closing all project aspects, not just
occupying a facility. This had the benefit of forcing true project completion, including promptly
obtaining final documentation which has traditionally been difficult and closure of the accounting
records, which had historically extended years beyond building occupancy. Even with these
pressures, closing projects has continued to be challenging and in most cases took over a year from
the time of actually occupying the facility. While some would argue that another review
organization contributes to bureaucracy, in practice it has ensured that performance was taken
with due seriousness. Just as a teacher finds discipline support in her principal, the oversight
committee provided useful leverage when needed.
Professional Staff
Under the Bond Program, capital project funds were permitted to be used to hire and train
project management staff for the first time. This only applied to the university system. Several
campuses had not had a major capital project in years and were suddenly faced with 10 or more.
The campuses needed staff to manage those, and had no operating funds for staffing. The majority
of the campuses would not have been able to accomplish their programs without this funding.
While community colleges had similar staffing limitations, they were not authorized to use capital
project funds to increase project management capacity and expertise. Any future such capital
program should authorize the Community Colleges System Office to hire and train regionally
located staff to assist local colleges.
The Future of Capital Projects
As initially envisioned, the bond program would meet the first half of identified capital
needs for UNC to address the adequacy of existing space and the quantity of additional space
required to meet burgeoning enrollment as described in the report which resulted from the
legislature’s 1997 special provision mandating a “Capital Equity and Adequacy Study of The
University of North Carolina.” The need for ongoing maintenance and repair funding, both to retire
significant levels of deferred maintenance ($883M in 1998) and to continue to maintain facilities
once the backlog was addressed, was recognized.
Two events have heightened these needs, even with the advent of the bond program. First,
economic circumstances limited the availability of funding for repairs and renovations. While the
studies resulting from the 1997 special provision recommended an ongoing, annual stream of not
less than 3% of the current replacement value of all buildings plus infrastructure, funding has been
far below those levels. No repair funding was provided at all for 2001 and 2002 and limited
funding provided under debt (Certificates of Participation) in selected subsequent years. Many
facilities constructed or renovated earlier under the bond program are now in need of maintenance
or repair themselves, with inadequate funding to preserve these resources. The current backlog of
HEBOC Final Report
24
deferred maintenance is a staggering $2.92B, with needs identified as immediate (within one year)
at $1.66B.
In addition, UNC enrollment growth occurred far more rapidly than anticipated, increasing
space pressures. Projections for 2008 enrollment were met as early as 2002 for some institutions
and by 2005 for others. By 2008, most institutions exceeded their enrollment targets. See the
summary table below.
University of North Carolina Enrollment Comparisons
Institution Fall 2008 Target
Headcount1
2008 Fall
Headcount
Enrollment
(Actual)
Percentage Above
(or below) Target
Headcount
ASU 14,000 16,610 18.6%
ECU 24,000 27,677 15.3%
ECSU 3,000 3,104 3.5%
FSU 6,000 6,217 3.6%
NCA&T 10,600 10,388 ‐2.0%
NCCU 8,300 8,035 ‐3.2%
NCSU 30,100 32,872 9.2%
UNC‐A 3,500 3,629 3.7%
UNC‐CH 27,500 28,567 3.9%
UNC‐C 23,500 23,300 ‐0.9%
UNC‐G 14,800 19,976 35.0%
UNC‐P 4,200 6,303 50.1%
UNC‐SA 1,200 879 ‐26.8%
UNC‐W 12,500 12,643 1.1%
WCU 9,400 9,050 ‐3.7%
WSSU 4,200 6,442 53.4%
Total 196,800 215,692 9.6%
1 From "The University of North Carolina Capital Equity/Adequacy Study
Phase II Work Paper II‐B‐9, Enrollment Driven Capital Needs, March 5,
1999," Figure 5, page 13.
By 2008 in the Community College System, 55% of the colleges were below the industry
standard for assignable square feet per full‐time equivalent student, as a growing number of
students entered the system for re‐training to improve their employment prospects and transfer
students increasingly turned to the system as an affordable way to begin their pursuit of a four‐year
degree. In the last academic year, alone, full‐time equivalent (FTE) student enrollment at
community colleges has grown from 216,945 to 246,710, a collective 30,000 FTE; roughly the size
of NC State University, the State’s largest public university. While online instruction supported
24% of that growth, the remaining growth was served in traditional classroom settings or through
a combination of traditional classroom and distance education. Clearly distance learning has played
a key role in the ability to serve these students, but there are limits to the types of classes that can
be effectively provided online. Distance learning is not an effective teaching method to train nurses,
dental hygienists, welders, and carpenters who need face‐to‐face, hands‐on instruction.
Current demographics predict space will be needed for an additional 70,000 students in the
next 10 years. While some needs may be met by online learning, there will continue to be a need
for some hands‐on and traditional instructional experiences. The successful completion of the bond
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25
program may have bought some time in terms of facilities needs, but the dual pressures of funding
repairs and meeting enrollment growth needs mean that the work cannot end with the completion
of this program. In the 1999 report to the Board of Governors under the legislative “Capital Equity
and Adequacy Study,” it was noted that “…there is a new round of work to be done—to help assure
the competitiveness of the people, businesses and communities of North Carolina….” This is no less
true today and, in fact, has been reinforced in the UNC Tomorrow Commission’s final report
(December 2007) which renews the State’s commitment to education, ensuring access to higher
education, and preparing its citizens for engaged, productive lives. Will the university and
community colleges be ready?
HEBOC Final Report
26
Sources
Portions of this document were compiled from previously released reports including:
Building for the New Millennium – A Report to the University of North Carolina Board of
Governors, April 9, 1999, Eva Klein & Associates, Ltd.
Responding to a New Imperative – A mid‐term progress report on the 2000 Higher Education
Bond Program, North Carolina Business‐Higher Education Foundation, Inc., 2004.
The University of North Carolina Capital Equity/Adequacy Study – Phase II Work Paper II‐B‐9,
Enrollment Driven Capital Needs, March 5, 1999, Eva Klein & Associates, Ltd.
UNC Bond Report to the Higher Education Bond Oversight Committee, Quarterly.